Study suggests PCIP may not be a sustainable solution for people with pre-existing conditions

The Pre-Existing Condition Insurance Plan (PCIP) was established as part of the health care reform act to make affordable coverage available to uninsured people with pre-existing conditions, until the state health insurance exchanges open in 2014.

A recent study by the Commonwealth Foundation shows that enrollment has been lower for this program, and costs higher than expected. According to the study, the original federal allocation for PCIP will most likely not be exceeded; however, the program’s cost levels make it unsustainable as a long-term solution for providing coverage to uninsured people who are already sick.1

Background on PCIP

PCIP was established to provide “bridge” coverage to people with pre-existing conditions until they can purchase coverage on the health insurance exchanges established under the health care reform act (the Patient Protection and Affordable Care Act, or PPACA). These exchanges are due to open in 2014. When they do, people will be able to purchase health insurance without regard to pre-existing conditions, at the same rates paid by healthy people.

Currently, people with pre-existing conditions who are unable to obtain individual insurance on the private market can purchase it from their state’s high-risk pool or PCIP. To qualify for the PCIP, individuals must be without insurance for at least six months.

Fewer enrollees, higher claims costs

Analysts predicted that hundreds of thousands, if not millions, of people would enroll in PCIP. To date, only about 78,000 people have done so. According to the Commonwealth study, this is most likely due to 1) the six month “anti-crowd-out” provision, which encourages people to seek or remain in other insurance plans, and 2) the fact that premiums, while lower than those for state high-risk pools, are still unaffordable for many lower-income individuals. For example, in some states monthly PCIP premiums for a 50-year-old are less than $300. However, in Alaska and Washington state they are over $1,000, and 11 other states have premiums higher than $500.

With this low enrollment comes higher costs than originally expected. First, the amount of premiums paid to support the program are significantly lower. Second, the people enrolling—having gone six months without insurance—are significantly sicker with pre-existing conditions such as cancer, so they require more expensive medical treatment.

State pools and PCIP both operate at a loss. State budgets subsidize the care of their high-risk pool enrollees, and the federal government allocated $5 billion for states to cover their PCIP losses. However, the loss rates for PCIP are two to eight times higher than those for comparable state plans. In New Mexico, for example, the state pool has a loss ratio equal to 442% of the ratio experienced by the typical standard insurance plan, while the PCIP plan there has a loss ratio equal to 1,151% of the standard-plan ratio.

It is not anticipated that state PCIP requests will exceed the $5 billion federal allotment. However, if the program were to continue past the scheduled 2014 opening of the health insurance exchanges, the study suggests, its extremely high costs would make it unsustainable.

What you need to know right now

Barring changes to or repeal of PPACA, PCIP will continue to provide health insurance options for uninsured people with pre-existing conditions. After 2014, however, the sustainability of the program is in question. If health care reform proceeds as currently planned and scheduled, there will be no need for the PCIP, making its high costs a moot issue.

Impact on employees and individuals — Employees and individuals who have pre-existing conditions and have been without insurance for six months may still sign up for PCIP. If health care reform proceeds as planned, they will be able to purchase standard plans in 2014.

Impact on employers — Although there is no direct impact on employers, they should be aware that if health care reform is changed or repealed, PCIP is likely not a sustainable long-term solution for their most vulnerable employees.

Impact on brokers — Brokers should be aware that PCIP is not anticipated to exceed its federal allocation. Thus, individuals who meet the requirements for PCIP eligibility may participate in the program until the exchanges open in 2014.